Income taxes and our national economy;

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Income Taxes and Our National Economy
BY JACK MACY Partner, Chicago Office
Presented before Realtor Executive Seminar of Washington University, Saint Louis — October 1960
HE TOPIC that I have been asked to discuss with you is "Income
Taxes and Our National Economy." I should like to review with you in a general way some of the philosophy underlying our present tax structure and to consider what a factor the tax structure is in modern business life.
In order to understand where we are, sometimes it is necessary to look at where we have been. The income tax in its present form is not so very old, going back only to 1913.
Prior to that time, there was an income tax for a fairly brief period at the time of the Civil War and a corporation excise tax was enacted in 1909 which was in the nature of an income tax. Prior to 1913—at the end of the nineteenth century—there was also an attempt to enact an income tax. This tax was, however, declared unconstitu­tional
in the rather famous case of Pollock vs. Farmers Loan & Trust Company.
The question of what basis for taxation is fair and equitable is one to which theorists have given thought for a long time. One line of thought held that taxes should be apportioned according to the benefit that the taxpayer would expect to derive from governmental services. Another line of thought, which gave rise to the income tax, was that taxes should be apportioned according to so-called ability to pay. This concept considered that ability to pay increased more than proportionately in relation to the increase in income. Accord­ingly,
a graduated income tax would be an appropriate form of taxation.
There was and is also economic thought to the effect that an in­come
tax is one that is difficult to pass on. In other words, when there is competition between entities subject to varying rates of tax, those subject to the higher rates will have to absorb the excess taxes in order successfully to compete with those taxed at the lower rates.
THEORIES AND EARLIER PRACTICE
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